U S West Offers Dial-Up DSL Service

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U S West escalated its digital-subscriber-line marketing
last week, announcing a new consumer-oriented "dial-up" version of the service
at its lowest price yet.

The Englewood, Colo.-based Baby Bell launched "MegaBit
Select" -- a $19.95-per-month asymmetrical DSL service offering unlimited usage and
data speeds of 256 kilobits per second -- in three cities.

But unlike U S West's basic "MegaBit" service --
priced at $29.95 per month and providing an always-on, high-speed connection -- each time
Select users want to go online, they must establish a new session via a modem pool at
their local central office. That's similar to how narrowband dial-up subscribers connect
over their POTS (plain old telephone service) lines.

The service -- initially being offered in Portland, Ore.,
and Seattle and Tacoma, Wash. -- also limits user sessions to two hours, although
customers can initiate as many new sessions as they want. U S West said most Web surfers
in trials tended to use their line for only about 45 minutes at a time.

Matt Rotter, executive director of MegaBit services for U S
West's !nterprise Networking unit, said the telco developed the modem-pool arrangement
with its key vendor, Cisco Systems Inc., to create a service aimed at recreational
Internet users.

Market research indicated that those users did not
necessarily want the constant DSL connection that has proven attractive to small
businesses and power users.

Rotter said users click icons on their personal computer
desktops to establish their sessions, and PCs look for available ports in the CO modem
pool. If none is available, users get messages saying that the system is busy and telling
them to try again in 60 seconds.

"It's really bringing broadband into a mainstream
service," he added.

Some analysts said the idea of having to establish a
connection via a modem pool raised the specter of the access logjams that many users
experienced when Internet-service providers such as America Online Inc. began offering
flat-rate unlimited service. Business boomed, and many ISPs could not provide enough
local-access ports to keep up with the traffic.

"This sort of service is really only going to
frustrate people," said Tom Friedberg, an analyst for Denver-based Janco Partners.
"Frankly, the power user who really needs DSL is going to pay the extra bucks so that
they don't have to fight for a port."

U S West did not disagree that business and power users
will pay more for constant connection. But conversely, the company said, its market
research indicated a huge body of potential customers who are willing to sacrifice the
always-on feature of DSL in exchange for a lower monthly access fee.

"They're looking for an introduction to broadband
where they don't have to pay for connectivity they don't use," Rotter said. "As
their applications evolve, they can migrate to the always-on category."

U S West also enhanced the self-installation aspect of the
service, increasing the functionality of the CD-ROM installer given to customers so that
more of the process is accomplished by point-and-click commands than before, Rotter said.

The new service tier reflects the increasingly aggressive
pricing of DSL service by telcos as they attempt to stem the loss of potential customers
to rival cable-modem services, subscribership to which remains about 10 times as large as
the DSL base, with pricing generally around $40 to $50 per month.

U S West has been a leader in cutting its prices to compete
with cable, breaking below the $39.95- to $49.95-per-month packages offered by most major
DSL providers.

The telco's new plan also reflects the increasing creation
of service tiers tailored in response to what providers have learned in the market so far.

Just as U S West believes there is a big demand for dial-up
DSL at a cut-rate price, cable-modem-service provider Excite@Home is exploring the
creation of a new tier -- priced higher than its basic service -- which offers higher data
speeds.

Excite@Home has also begun retroactively limiting upstream
bandwidth for its basic customers, finding that its 128-kbps collar would not affect 99
percent of its subscribers.

"It's rare that you have robust head-to-head
competition going on," Kinetic Strategies Inc. president Michael Harris said,
"so people are testing different pricing models. From a cable perspective, so far,
there's been a reticence to confuse the consumer with too many pricing or packaging
options."

Harris added that besides the marketing aspects, U S West's
Select tier was likely also a more cost-effective product for the company to offer to
low-end users.

"With a sign-on session, you basically don't have
somebody eating up a port all of the time, so you can drop their price because there's
less capital cost per customer," he said.

But given U S West's past problems in provisioning enough
service to meet demand, Harris and others also questioned whether it could support a
mass-market DSL product.

Friedberg cited Janco's in-house experimentation with a
variety of high-speed cable- and telco-data services, noting that 15 different workers in
its Denver offices had tried -- and failed, for a variety of reasons -- to get U S West
DSL service at their homes.

"I may be proven wrong, but for people who really want
those connectivity speeds, they're not going to be content to sit around waiting for
access," Friedberg added.

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